While the Canadian banks were almost completely immune from the financial crisis that rocked most industrialized nations, its real estate market still took a hit along with everyone else.

But the fall in real estate value was shallow and short lived, especially compared to the US experience. And now, while most real estate markets around the world are either continuing to fall or are mired in a slow, painful bottoming process, the Canadian market is at an all time high.

I read two reports recently (from Scotiabank & RBC) which both highlight the off-cycle strength in Canadian real estate. You can download them both from the Trading Resource Section.

Here’s a chart which should alarm and dismay:

The Scotiabank report includes this excerpt:

If analysts were worried about Canadian house prices over 2007-08, it would be inconsistent to suddenly no longer believe them to be in lofty territory today

Price to rent ratios are a useful metric because they automatically mitigate for any inflationary effects over time, and also because it is arguably the best way to put a relative ‘price’ on housing. After all, renting vs. buying is a decision that all participant in the real estate market make.

Almost exactly a year ago I showed a similar chart of real estate price to rent ratios around the world based on OECD data. Back then, Canada was alarmingly high, at second place. The first place holder was Spain whose real estate market has since been obliterated (and dragged the whole economy down with it to an almost depression like condition).

This also confirms my recent call to exit the REIT market after taking profits from the rally earlier in the year.

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problem is, internationally, (per sq ft) , Toronto is dirt cheap. If it gets a whiff of becoming a more international centre on flight to quality/ safety of Canadian banks, etc…. remember what happened in the UK when the Russians decided that a London trophy property was a good idea. Knightsbridge prices rose 70% in one year. And don’t forget the Bank of Canada has its hands tied on rates- if the last thing they want is a stronger loonie, Canadian rates should stay low/ this should add to the current liquidity bonanza